Banks earn 35% more to P168 billion in 9 months

MANILA, Philippines — Earnings of Philippine banks jumped by 35 percent to P168.21 billion in nine months from a year-ago level of P124.55 billion, amid the sharp drop in provision for credit losses as the country continues to recover from the impact of the pandemic, data released by the Bangko Sentral ng Pilipinas (BSP) showed.

After a massive hike in allowance for bad debts as more borrowers defaulted on loan payments, provisions for credit losses on loans and other financial assets plunged by 43 percent to P90.34 billion from January to September compared to P161.12 billion in the same period last year.

However, the amount of bad debts written off by the banking sector more than doubled to P6.36 billion from P2.81 billion due to the mandated relief measures under Republic Act 11469 or the Bayanihan to Act as One Act (Bayanihan 1) and RA 11494 or the Bayanihan to Recover as One Act (Bayanihan 2).

Total operating income of banks slipped by 4.3 percent to P650 billion as the industry’s net interest income declined by four percent to P485 billion.

Data showed the non-interest earnings of banks operating in the country decreased 5 percent to P164.57 billion. Trading income fell 22.6 percent to P75.5 billion, erasing the 18 percent increase in fees and commission income to P76.12 billion.

In 2020, earnings of the entire banking sector slumped to a four-year low after declining 33 percent to P155.22 billion from the record P230.67 billion in 2019 as the industry’s provision for potential loan losses almost quadrupled.

Last year’s decline ended four straight years of profit growth for the banking sector and was the lowest since the P153.31 billion booked in 2016. The industry’s earnings contracted slightly to P135 billion in 2015 from P135.6 billion in 2014.

Moody’s Investors Service senior vice president Alka Anbarasu and senior analyst Gracie Zhou said an improving operating environment would support credit demand from borrowers, but the pace of recovery would vary.

“The recovery of businesses will be slower in Thailand and the Philippines than elsewhere, but economic conditions in those two countries will still be better than in 2021,” the debt watcher said.

Bank lending in the Philippines grew for the second straight month, rising by 2.7 percent to P9.25 trillion in end-September amid the modest recovery in the overall lending attitude of Philippine banks along with improved economic prospects.

Amid aggressive easing including the 200-basis-point cut in interest rates and lowering of reserve requirement ratio undertaken by the BSP to cushion the impact of the global health crisis on the economy, bank lending finally started recovering in August after contracting for eight straight months since December.

Moody’s said non-performing loans (NPLs) would increase in the small and medium enterprises (SME) and retail loan segments, while corporate loan quality would be stable.

“Policy support for borrowers will limit asset quality deterioration,” it said.

Moody’s said banks would continue to expand through digital and mobile financial services, which have gained significant traction in the past year because of social distancing measures.

“Banks will partner with fintech companies to develop digital ecosystems,” Moody’s said.